The Rise And Fall Of Enron

Exploring Enron as it goes from infancy to final explosion, is a valuable mechanism for understanding, how not to organize and manage a company properly. Lay and especially Skilling, were very powerful and persuasive orators. Their charisma radiated out to the employees who followed their leadership with blind obedience. This facilitated a work culture and environment that was toxic, and infectious to everyone involved. It limited any staff diversification internally and fostered a severely overt masculine culture that lead to its downfall eventually.

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Ken Lay and Jeffrey Skilling were the team known as The Smartest Guys in the Room. This powerhouse team of two people coordinated their work to meet a shared common objective. That objective was to make money. This objected created a culture that was one of “intense pressure to keep Enron stocks on an ever-rising curve.” (Stephens

Enron executives Ken Lay and Jeffrey Skilling were found guilty of fraud and conspiracy. Andrew Fastow, Enron’s CFO, cut a deal in a plea-bargain in which he testified against his former bosses. The three of them have been called sociopaths. For instance, when Skilling took the stand he almost seemed humble, and assured his innocence, claiming that Enron didn’t do anything wrong.

On December 2, 2001, less than a month after it admitted accounting errors that inflated earnings by almost $600 million since 1994, the Houston-based energy trading company, Enron Corporation, filed for bankruptcy protection. With $62.8 billion in assets, it became the largest bankruptcy case in U.S. history, dwarfing Texaco's filing in 1987 when it had $35.9 billion in assets. The day Enron filed for bankruptcy its stock closed at 72 cents, down from more than $75 less than a year earlier. Many employees lost their life savings and tens of thousands of investors lost billions. Who is to Blame? That is what at least a half-dozen Congressional Committees, the SEC, the U.S. Justice

Kenneth Lay was the founder of Enron in 1985 and was the chief executive officer for over 15 years. In 1990 Jeffery Skilling joined the company and later on became the chief executive officer in February 2001. However quickly resigned months later for “family reasons.” In despite of Skilling leaving the company, they were both credited in building Enron into a powerhouse in its creative management. In the near future when the company started going down hill both their names were associated with the culture of corporate scandals that followed Enron’s death. In late

Abstract Enron’s accounting for its non-consolidated special-purpose entities (SPEs), sales of its own stock and other assets to the SPEs, and mark-ups of investments to fair value substantially inflated its reported revenue, net income, and stockholders’ equity, and possibly understated its liabilities. We delineate six accounting and auditing issues, for which we describe, analyze, and indicate the effect on Enron’s financial statements of their complicated

In today’s society the desolation of Enron has been one of the greatest disasters to hit a major United States corporation, nevertheless the actions of this deception let to Varity major future benefits. The effects of Enron without a doubt are primarily disadvantageous. However, although Enron has made illegal and unethical choices the company has paid the ultimate penalty by “Declared bankruptcy on December 2, 2001 after restating earnings in the 3rd-quarter 10-Q, indicating major problems with special-purpose entities. Investigations by the SEC, Justice Department, and others; executives indicted and class-action lawsuits filed (Giroux. 2008). Whereas many perceive the Enron scandal as a total disaster there has been many optimistic out comes that has surfaced from this scandal.

Most of the top executives overstated Enron’s earnings by several million dollars (Niskanen, 2005) causing the company’s stockholders to lose millions of dollars. Kenneth Lay who joined InterNorth, later renamed Enron, in 1985 became the CEO the following year. In 1990, Kenneth Lay hired Jeff Skilling to work in the operations department. Jeff Skilling would eventually take over Enron in 2001 as there Chief Executive Officer, replacing Kenneth Lay (Zimmerli, Richter, & Holzinger, 2007, p. 131).

Mentioning the name Enron to scholars and practitioners in accounting will always shift their thoughts to ethical accounting practices. This owes to the fact that the failure of organizations like Enron, WorldCom and Adelphia, led to changes in the standards of practice in accounting. Consequently, several authors completed studies on the collapse and demise of Enron. For instance, Moncarz et al., (2006), Cunningham and Harris (2006), and Dembiski et al., (2006) made publications on the topic in question. According to Moncarz et al., (2006) Enron’s failure represents the biggest company failure in the history of America. This is highlighted by the fact that Enron had revenue of US $101 billion and an estimated size of 21000 employees by 2000. However, Dembiski et al., (2006) reveals that the organization collapsed in 2001 owing to unethical accounting practices within the organization. This paper discusses how Enron led to increased emphasis on corporate codes of conduct by analyzing the

The fall of Enron could have been redirected, but if they didn’t use unethical practices their vast growth would have never prevailed and their bankruptcy wouldn’t have been one for the books. Arthur Andersen was the auditors firm in charge of Enron’s finances. They generated a ridiculous amount of fees for consultation on Enron’s finances and therefore they were accused of having conflicts of interest in the corporation. Andersen also shredded relevant documents and deleted any form of evidence when news arrived that the (SEC) was investigating Enron. This also caused accusations of cover-up. All the negative publicity of Enron as well as its ill eagle practices led to a complete downfall in their stocks and worth. They were stuck in a kitchen filled with debt and not even their extravagant recipe for success could have saved them. (Paul, M; Krishna, G “The Fall of Enron” Journal of economic perspectives) The auditors understated its liabilities and its earnings were overstated. Enron told its Shareholders it had hedged downside risk in its own illiquid investments through using special purpose entities. What investors didn’t know was the fact that the special purpose entities actually used the company’s own stock and financial guarantees to finance the hedges. Thus Enron was not protected form downside risk. The fact that Enron used unethical practices actually caused them

The firm’s mangers lied on profit and concealed debts, all to show that the company was doing fine. Indications started to emerged in 2001, with a stock price as high as $85 in January though $90 in the previous year, descending to a record low of 26 cents (see the graph below). Although, things started going bad much earlier. In what follows, I present in chronogical order how business activities of enron were finally grounded:

Imagine one day owning thousands of shares in a multi-billion-dollar company worth million to then wake up the next to find out those shares are now worthless. This was the sad truth for many people and employees invested into the big power giant known as Enron in the early 2000s. Enron was a company formed in a merger that was a huge supplier of natural gas and electricity. Enron executives encouraged their accounting team to manipulate their financial statements to make their company performance look better than they actually were. As a result of this constant illegal practice, Enron declared bankruptcy in December 2001 after reporting a 3rd quarter loss of $618 million that sent their stock value plummeting (Corrupt Crimes). Former CEOs

As competition increased and the economy started to plunge in the early 2000s, Enron struggled to maintain their profit margins. Executives determined that in order to keep their debt ratio low, they would need to transfer debt from their balance sheet. “Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors” (Thomas, 2002). Executives developed Structured Financing and Special Purpose Entities (SPE), which they used to transfer the majority of Enron’s debt to the SPEs. Enron also failed to appropriately disclose information regarding the related party transactions in the notes to the financial statements.Andersen performed audit work for Enron and rendered an unqualified opinion of their financial statements while this activity occurred. The seriousness and amount of misstatement has led some to believe that Andersen must have known what was going on inside Enron, but decided to overlook it. Assets and equities were overstated by over $1.2 billion, which can clearly be considered a material amount (Cunningham & Harris, 2006). These are a few of several practices that spiraled out of control in an effort to meet forecasted quarterly earnings. As competition grew against the energy giant and their

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?